What is the RCEP and why is it important?

World's biggest trade pact has been signed by 15 nations in the Asia-Pacific region

Vietnam's Prime Minister Nguyen Xuan Phuc, left, and Minister of Industry and Trade Tran Tuan Anh applaud in Hanoi following the online signing of the Regional Comprehensive Economic Partnership. EPA

The world's biggest free trade pact, the Regional Comprehensive Economic Partnership, was signed between China and 14 other nations on Sunday. Signatories included 10 members of the Association of South East Asian Nations and five major trading partners. A signing ceremony was held online by the 15 trade ministers on Sunday, on the sidelines of a virtual ASEAN meeting chaired in the Vietnamese capital, Hanoi.

What is the RCEP?

It's a 20-chapter agreement to reduce or remove trade tariffs in a number of areas, including on agricultural and industrial products. It also sets out rules for data transmission between the signatories. The countries signing the trade pact represent 30 per cent of the global economy, the combined equivalent of about $26 trillion of GDP, and 30 per cent of the world's population, or about 2.2 billion consumers.

How did it come about?

The deal began life in 2012, when ASEAN nations started discussions on harmonising trade policies, and has taken eight years to negotiate. Signatories include the 10 ASEAN nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – and major trading partners Australia, China, Japan, New Zealand and South Korea.

Why is it important?

The agreement could give a "significant boost to foreign direct investment" in the region, particularly as it faces upheaval caused by Covid-19, according to the United Nations Council on Trade and Development. Countries that signed the pact are facing a 15 per cent decline in FDI to a combined $310 billion this year.

Intra-regional investment, at 30 per cent of the total, has significant room for growth. FDI, investment by multinational enterprises (particularly those based in China and Singapore), and global value chains emanating from the region are all likely to benefit from the pact, UNCTAD said on Sunday. The least-developed countries – Cambodia, Laos and Myanmar – are the most likely to benefit as they typically receive more FDI from neighbouring RCEP members. Investment in infrastructure and industry would also improve their participation in global trade.

Why did it take so long?

Trade deals often take a long time to negotiate due to disagreements over their size and scope. In this instance, India was originally included in the talks and would have been the third-largest economy to participate, but it withdrew in November last year, with Prime Minister Narendra Modi concerned that it would widen existing trade deficits and hurt the country's farming industry. Others, including US Commerce Secretary Wilbur Ross, argued the pact didn't go far enough. He described it to Bloomberg as a "low-grade treaty" that didn't even warrant being described as a trade agreement. The RCEP still needs to be ratified by all signatory nations before it comes into force.

Wasn't the US pursuing something similar?

It was. The Trans-Pacific Partnership was an attempt by the former Obama administration to deepen trade links among the US and other Asian nations – in part to curtail China's growing regional influence. This was broader in scope than the RCEP, but the Trump administration pulled out of talks in 2017, with the president saying that it would pursue bilateral trade deals instead.

Where does this agreement leave that deal?

It's not clear when, or even if, a Biden administration would look to revive the Trans-Pacific Partnership. The Democratic Party's election platform said it would "work to strengthen ties with and between our key allies in the [Asia-Pacific] region, including Japan, South Korea, and Australia", but also said it would "protect the American worker from unfair trade practices by the Chinese government".